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The Competition and Markets Authority (CMA) released its final report on the transaction between JD Sports Fashion Plc and Footasylum Ltd. According to the report, the transaction would lead to a lessening of competition. The CMA has asked JD Sports Fashion to find a suitable owner for Footasylum and sell it.
Both the companies have expressed their disappointment over the CMA’s decision. The transaction would have resulted in transferring benefits of mixed synergies to the customers, and both the companies together would have forged a compelling customer proposition.
In March 2020 alone, as per the data from the Office for National Statistics, clothing saw a huge drop in demand, as sales volumes were down by 35 per cent. The situation was very crucial for Footasylum, which was already in a dire financial position and was heavily reliant on the brick and mortar business model. This decision could be detrimental to Footasylum, rendering the company out of business. In this regard, JD Sports Fashion might take legal action against CMA.
As per the company, CMA's provisional decision depicts a complete misunderstanding of the retail market and is fundamentally flawed. However, the company still believes that the combination of the two businesses would not only maintain the Footasylum's presence on the high street as the music-inspired casual retailer but would also provide significant long-term benefits to customers, colleagues, and brand partners.
In February 2020, the CMA had raised its concerns over the lessening of competition in the retail sector by the planned acquisition of Footasylum. According to the JD Sports Fashion group, the competition, and the business dynamics of the sports retail sector in the United Kingdom are not accurately captured in the provisional findings of CMA.
In October 2019, regarding the Group's acquisition of Footasylum, the Competition and Markets Authority's (CMA) had confirmed that following the Phase 1 decision it intends to refer its review to Phase 2 investigation. According to the CMA’s Phase 1 decision, the acquisition of Footasylum would give rise to a credible likelihood of a significant reduction of competition.
However, JD Sports Fashion Plc was of the opinion that the acquisition would ease the competition in the clothing and footwear retail sector in which the two companies are operating. The company had acquired seventy Footasylum stores in the United Kingdom successfully and expected that this move does not negatively affect the competitive environment. Brands and buyers could opt to sell or buy from multiple channels, e-commerce platforms, both in the domestic market as well as globally. However, the brands are creating their own marketing channels to promote and push their products to buyers.
Last year in March 2019, JD Sports Fashion Plc made a cash offer to buy the entire ordinary share capital, issued and to be issued of Footasylum Plc. The Boards of both the companies agreed upon the recommended cash offer for Footasylum by JD Sports Fashion, which was to be implemented by means of a takeover. The addition of Footasylum Ltd to the portfolio of JD Sports Fashion group would have complemented the existing setup by bringing differentiated customer demographic and fashion-led product range of the two businesses. The company was also supposed to reap operational and strategic benefits from the blend of the synergies. The cash offer valued the capital (entire issued and to be issued ordinary share) of Footasylum Plc at circa £90.1 million on a fully diluted basis and was to be financed from JD Sports Fashion’s existing cash resources and facilities.
About JD Sports Fashion Plc
The leading retailer of sports, fashion and outdoor brands, JD Sports Fashion Plc (LON: JD.) is a Bury, United Kingdom based company that operates a chain of retail stores which sell branded leisurewear. The group’s business is divided into two segments, which are Sports Fashion and Casual clothing. Its sports fashion segment features brands like Chau sport, Getthelabel.com, Kukri Sports, Scotts, JD Gyms, Nicholas Deakins, Sprinter, Source Lab, Tessuti, Cloggs, and Kooga. Its Casual clothing segment comprises of brands like Tiso, Millets, Blacks, and Ultimate Outdoors. The company operates from physical stores as well as e-commerce platforms. The company has its operations in several countries with 700 plus physical stores.
The group’s turnover was up by 47 per cent to £2,721.2 million in the first half of the fiscal year 2020. The company’s adjusted earnings per share improved by 25.1 per cent to 12.57 pence in the first half of the fiscal year 2020 from 10.05 pence in the first half of the fiscal year 2019. The company also proposed an interim dividend of 0.28 pence per share in the first half of the fiscal year 2020, a surge of 3.7 per cent against the previous year.
Given the current uncertainties in the highly unusual circumstances, it is imperative of the company to preserve cash in the best interests of all its stakeholders, and hence, the company is not likely to pay a final dividend this year.
The FCA (Financial Conduct Authority) had notified a temporary relief for the listed companies of reporting financial results during the current crisis caused by the Covid-19 pandemic on 26 March 2020. The businesses which were supposed to declare results in this period can delay their results by four to six months. Therefore, JD Sports Fashion decided to announce its results for the 12 months to 1 February 2020, on 7 July 2020.
On 7th May 2020, at the time of writing (before market close, GMT 09:47 AM), JD Sports Fashion Plc shares were 3.67 per cent up against its previous day closing price were trading at GBX 537.20. 52 weeks High and Low of the Stock was reported at GBX 890 and GBX 274.70, respectively. At the time of writing, the share was trading 95.56% higher than its 52-week Low and 39.64% lower than its 52-week High. Along with an annual dividend yield of 0.34 per cent, the beta of the company stood at 1.49, reflecting higher volatility as compared to the benchmark index. The total M-Cap (market capitalisation) of the company while writing stood at £5,043.29 million.
About Footasylum Plc
Founded in 2005, Footasylum Plc is one of the leading retailers of sportswear and fashion streetwear. The company is known for its sports fashion collections and is always on the lookout for fresh and upcoming brands. The company strives to keep its customers up to date with fresh arrivals season to season. The company has a huge range of footwear and apparel with more than 60 plus stores in the United Kingdom.
